Dominion files complaint against PJM over fuel compensation at Ladysmith plant

Dominion Resources Services, on behalf of fellow Dominion Resources (NYSE: D) subsidiary Virginia Electric and Power d/b/a Dominion Virginia Power, on Aug. 29 filed a complaint with the Federal Energy Regulatory Commission against PJM Interconnection over compensation for using backup fuel oil this past June at the Ladysmith power plant.

Dominion is pursuing the complaint against PJM and its subsidiary PJM Settlement Inc. Dominion requested that the commission: find that PJM violated its Tariff, Operating Agreement and Manuals by denying Dominion’s request for a fuel “cost adjustment” resulting from the need to run Ladysmith Power Station Units 2-5 for reliability in real-time on back-up fuel oil rather than less expensive natural gas; and direct PJM to make Dominion whole with respect to costs incurred in following PJM’s dispatch instructions to address a system reliability need.

Said Dominion: “Such a directive is necessary to ensure that Dominion is not placed in the unreasonable position of meeting the reliability needs of the system while incurring significant financial losses in doing so. Alternatively, Dominion respectfully requests that the Commission grant a waiver of applicable provisions of PJM’s Tariff and Operating Agreement to ensure that Dominion is made whole for its reasonable and verifiable fuel costs incurred when dispatched by PJM for reliability. As discussed below, a waiver is appropriate as the Commission has placed market participants on notice of a potential refund obligation in determining that PJM’s Tariff is unjust and unreasonable because it does not allow market participants to update their offers in real-time to reflect changes in costs and establishing a June 17, 2015 refund effective date. Dominion’s inability to reflect the costs associated with its need to operate on more expensive back-up fuel oil in real-time is a direct result of the real-time offer limitations the Commission found were unjust and unreasonable.”

Dominion Resources Services provides various management services to Dominion Virginia Power. Dominion Virginia Power is a load serving entity that takes transmission service under the PJM Tariff and is a market participant that participates fully in the PJM markets. Dominion Virginia Power owns the Ladysmith Power Station, which is located in Ladysmith, Virginia, and consists of five natural gas-fired combustion-turbine (CT) units (Units 1-5) with a total net generating capacity of 783 MW. Ladysmith Power Station began commercial operation in 2001 and is capable of operating on oil stored on site as a back-up fuel source.

As quick-start resources, CTs, like those at Ladysmith, play a critical role in the operation and reliability of the PJM system, Dominion noted. When a CT does not clear the Day-ahead Market, PJM relies on CTs as sources of reserve power to quickly relieve unexpected transmission constraints, generator outages, or meet unforeseen increases in load that other sources of generation cannot relieve in a timely manner.

On June 24 of this year, Dominion submitted both market- and cost-based offers for the Ladysmith Units in the PJM Day-ahead Market for the next operating day, June 25. The cost-based offers assumed that if committed, the Ladysmith Units would operate on their primary fuel: natural gas. The Ladysmith Units did not clear in the Day-ahead Market and therefore were not committed to operate on June 25. Dominion did not know on June 24 at the 2:15 close of the reoffer period that the Ladysmith Units would not be able to run on natural gas during the June 25 operating day.

At approximately 11:00 a.m. during the June 25 operating day, however, PJM directed Dominion to operate Ladysmith Units 2-5 beginning one-hour later at 12:00 p.m. to meet a system reliability need resulting from a transmission constraint. At that time, Dominion informed PJM that due to a constraint on the Virginia Natural Gas (VNG) intrastate pipeline that arose after the close of the balancing market re-offer period, the Ladysmith Units would be unable to operate on natural gas and instead would need to run on more expensive back-up fuel oil stored on-site.

PJM reaffirmed its dispatch directive and ultimately Units 2, 4 and 5 ran for some time on higher cost fuel oil. On June 27, Dominion submitted a request to PJM for an “adjustment” to the applicable uplift calculation associated with the dispatch of Ladysmith Units 2-5 for reliability on June 25 pursuant to Attachment C of PJM Manual-11. Dominion explained that the cost adjustment was necessary to reflect the difference between: the fuel cost component of the cost-based offer Dominion submitted in the Day-ahead Market based on natural gas; and the actual costs incurred to operate the units on back-up fuel oil in real-time.

On June 30, Dominion said that PJM denied the cost adjustment stating: “The request was reviewed by Management and has been denied due to the specifications in Manual 11, Attachment C. Joe Ciabattoni spoke with Mr. Bonner at DOM and explained why this was denied. The main issue was DOM didn’t have an oil schedule (offer) in Markets gateway.”

Dominion told FERC that under PJM’s market rules, generation resources that are scheduled by PJM and follow dispatch instructions are generally entitled to fully recover their costs of operation. PJM makes resources whole by providing “uplift” payments to generation resources when market revenues are insufficient to cover the costs incurred by resources following PJM’s dispatch instructions.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.